<PAGE>
                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549
                                      
                                      
                                  FORM 10-K
                                      
                                      
            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                                      
                 For the fiscal year ended December 31, 1996
                                      
                        Commission File Number 1-2222
                                      
                                      
                       ILLINOIS BELL TELEPHONE COMPANY
   An Illinois Corporation                       I.R.S. Employer No.
                                                      36-1253600
   
                          225 West Randolph Street
                          Chicago, Illinois  60606
                       Telephone Number 1-800-257-0902
                                      
                                      
   Securities registered pursuant to Section 12(b) of the Act:
   
    Thirty-Five Year 7 5/8% First Mortgage Bonds, Series K, due April 1,
                                    2006
                                      
                                      
   Exchanges on which registered:  New York Stock Exchange
   
   Securities registered pursuant to Section 12(g) of the Act:
   None
   
   
      THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF AMERITECH
   CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL
   INSTRUCTIONS J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE
   FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
   GENERAL INSTRUCTION J(2).
   
      Indicate by check mark whether the registrant (1) has filed
   all reports required to be filed by Section 13 or 15(d) of the
   Securities Exchange Act of 1934 during the preceding 12 months
   (or for such shorter period that the registrant was required to
   file such reports) and (2) has been subject to such filing
   requirements for the past 90 days.
   
                      Yes    X   No
                                      
                                      
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                              TABLE OF CONTENTS
                                      
                                   PART I
                                      
 Item                                                        Page
 ----                                                        ----
  1.   Business.........................................       1
  
  2.   Properties.......................................       7
  
  3.   Legal Proceedings................................       8
  
  4.   Submission of Matters to a Vote of Security
        Holders (Omitted pursuant to General Instruction J(2)).
                                      
                                   PART II
                                      
  5.   Market for Registrant's Common Equity and Related
        Stockholder Matters (Inapplicable).
  
  6.   Selected Financial and Operating Data............       9
  
  7.   Management's Discussion and Analysis of Results of
        Operations (Abbreviated pursuant to
        General Instruction J(2)).......................      10
  
  8.   Financial Statements and Supplementary Data......      17
  
  9.   Changes in and Disagreements with Accountants
        on Accounting and Financial Disclosure..........      31
        
                                      
                                  PART III
                                      
  10.  Directors and Executive Officers of the Registrant
        (Omitted pursuant to General Instruction J(2)).

  11.  Executive Compensation (Omitted pursuant to
        General Instruction J(2)).

  12.  Security Ownership of Certain Beneficial Owners
        and Management (Omitted pursuant to General
        Instruction J(2)).

  13.  Certain Relationships and Related Transactions
        (Omitted pursuant to General Instruction J(2)).
                                      
                                   PART IV
                                      
  14.  Exhibits, Financial Statement Schedules,
        and Reports on Form 8-K  .......................      32
                                      
                                      i
   
<PAGE>
                                   PART I
                                      
   Item 1.   Business.
   
   The Company
   
      Illinois Bell Telephone Company (Illinois Bell or the Company),
   incorporated under the laws of the State of Illinois, has its
   principal office at 225 West Randolph Street, Chicago, Illinois
   60606 (telephone number 1-800-257-0902).  The Company is a wholly
   owned subsidiary of Ameritech Corporation (Ameritech), a Delaware
   Corporation.  Ameritech is the parent of numerous other
   communications businesses and has its principal executive offices at
   30 South Wacker Drive, Chicago, Illinois 60606 (telephone number 1-
   800-257-0902).  Illinois Bell is managed by its sole shareowner
   rather than a Board of Directors as permitted by Illinois law.
   
      Ameritech operates its business within the framework of customer-
   specific business units delivering specialized services to various
   categories of customers, each with unique requirements.  The
   functions of the business units, which include consumer, business,
   cellular, advertising and capital services, as well as services
   provided to other companies in the communications industry, overlap
   the legal entities, including the Company, which form the
   infrastructure of Ameritech.  The products and services of all the
   companies are marketed under the "Ameritech" brand identity, but
   Ameritech's five landline communications companies remain
   responsible within their respective service areas for providing
   telephone and other communications services, subject to regulation
   by the Federal Communications Commission (FCC) and the respective
   state public service commissions in Illinois, Indiana, Michigan,
   Ohio and Wisconsin.  Illinois Bell is regionally identified and does
   business as "Ameritech Illinois."
   
      Ameritech is one of seven regional holding companies (RHCs)
   formed in connection with the court-approved divestiture of certain
   assets of AT&T Corp. (AT&T), formerly American Telephone and
   Telegraph Company.  Effective January 1, 1984, AT&T transferred to
   Ameritech its 100% ownership of the exchange telecommunications,
   exchange access and printed directory advertising portions of
   Illinois Bell; Indiana Bell Telephone Company, Incorporated;
   Michigan Bell Telephone Company; The Ohio Bell Telephone Company and
   Wisconsin Bell, Inc.
   (referred to collectively as the "Ameritech landline communications
   subsidiaries"), as well as a cellular communications company.
   
      The consent decree, entitled "Modification of Final Judgment"
   (Consent Decree), as originally approved in 1982 by the United
   States District Court for the District of Columbia (Court), placed
   restrictions on the post-divestiture activities of the seven RHCs,
   including Ameritech.  Relief from these restrictions could be had
   only upon a showing to the Court that there was no substantial
   possibility that the requesting company could use its monopoly power
   to impede competition in the market it sought to enter.  Over time,
   the Court granted waivers to the RHCs to engage in otherwise
   prohibited lines of business, including the right to offer
   information services.  Ameritech sought to remove or modify the
   remaining restrictions, which included prohibitions on providing
   long distance services and manufacturing telecommunications
   equipment.  These efforts were suspended upon the passage of the
   Telecommunications Act of 1996 (Telecom Act).  The Telecom Act
   effectively superseded future operation of the Consent Decree.
   Consequently, in April 1996, the Court issued an order terminating
   the Consent Decree and dismissing all pending waiver requests.
   
   Implementing the Telecom Act
   
      On February 8, 1996, the first comprehensive overhaul of
   telecommunications legislation in 62 years was signed into law,
   removing barriers that prevented the phone, cable TV and broadcast
   industries from entering each others businesses.  The Telecom Act
   addresses various aspects of competition within, and regulation of,
   the communications industry.  Among other things, the new law
   defines the conditions under which local exchange carriers,
   including the Ameritech landline communications subsidiaries, may
   offer long distance service and provides certain mechanisms intended
   to facilitate local exchange competition.  The Act gives the FCC the
   authority to determine when incumbent
   
                                      1
                                      
   <PAGE>
   
   local exchange carriers have satisfied the statutory criteria
   required to provide long distance service in an in-region state,
   including meeting a 14-point competitive checklist.  The law
   eliminates any remaining barriers to companies wishing to compete
   against providers of local phone service.
   
      As required by the new law, in August 1996 the FCC adopted rules
   to implement the local competition provisions.  The rules require
   local exchange carriers, among other duties, to (1) provide
   interconnection to any telecommunications carrier at any technically
   feasible point, equal in quality to that provided for the local
   exchange carrier's own operations; (2) provide such carriers with
   access to network elements on an unbundled basis; and (3) offer for
   resale, at wholesale rates, any telecommunications services that the
   local exchange carrier provides at retail to subscribers who are not
   telecommunications carriers.  The FCC's rules address pricing for
   interconnection, unbundled network elements and resale of
   telecommunications services.
   
      In October 1996, in an order entered in an appeal filed by
   certain local exchange carriers, the U.S. Court of Appeals for the
   Eight Circuit stayed the portion of the FCC rules with respect to
   pricing and the FCC's so-called "pick and choose" rules.  The U.S.
   Supreme Court declined to overturn the appeals court stay.  The stay
   will be in effect until the appeals court decides on the merits of
   those provisions, sometime in 1997.  Although Ameritech filed a
   separate lawsuit, the appeals court consolidated all challenges to
   the FCC rules.  In the meantime, the FCC's interconnection rules
   remain in effect.
   
      It is not possible to determine what effect the FCC rules will
   have on the Company's business until challenges to the rules have
   been resolved and the state regulatory commission in Illinois has
   acted on the matters within its jurisdiction.
   
   Illinois Bell's Full Service Communications Business
   
      Illinois Bell furnishes a wide variety of advanced
   communications services, including local exchange and toll service,
   network access and communications products to business, residential
   and communications company customers in an operating area comprised
   of 16 Local Access and Transport Areas (LATAs) in Illinois.  These
   LATAs are generally centered on a city or other identifiable
   community of interest, and each LATA marks the boundary within which
   Illinois Bell may provide telephone service.  The Company provides
   two basic types of communications services.  It transports
   communications traffic between a subscriber's equipment and the
   telephone exchange offices located within the same LATA (intraLATA
   service).  These services include local exchange, private line and
   intraLATA toll services (including 800 and special services for
   data, radio and video transport).  In addition, it provides exchange
   access service, which links a subscriber's telephone or other
   equipment to the transmission facilities of long distance carriers,
   which in turn provide communications service between LATAs
   (interLATA, or long distance, service).  About 80% of the population
   and 20% of the area of Illinois is served by Illinois Bell.  The
   remainder of the state is served by nonaffiliated telephone
   companies.
   
      Illinois Bell also provides directory listings, public telephone
   and local and toll operator services, including collect calls, third
   number billing, person-to-person and calling card calls.  It offers
   call management services, including voice mail, Caller ID, call
   waiting and call forwarding, as well as digital network services
   such as on-line database access and fax messaging, document sharing
   functions and video conferencing for desktop computers.  A new
   national directory assistance service became available in the
   Chicago and Detroit areas in 1996, with plans calling for this
   service to be offered across the Ameritech region.  The Company
   provides billing and collection services for several companies,
   including billing for long distance services offered by certain long
   distance carriers, some of which began billing their own customers
   in 1996.  In 1996, Illinois Bell launched the first phase of a plan
   to offer to customers in certain areas a single bill for long
   distance and local telephone services, as well as other services
   provided by affiliated companies, such as cellular, paging and
   security monitoring services, with cable TV and Ameritech's long
   distance services to be added at a later date.  The Company markets
   its local phone services on a wholesale basis to certain carriers
   that resell services from the Company's network.
   
                                      2
                                      
   <PAGE>
   
      The following table sets forth the number of access lines served
   by the Company at the end of each of the last five years:
   
                                 1996    1995    1994   1993    1992
                                 ----    ----    ----   ----    ----
   Access lines in service
     (in thousands)...........  6,473   6,258   5,983  5,763   5,586
   Percent increase over prior
     year.....................    3.4     4.6     3.8    3.2     2.3

      Illinois Bell has an agreement with: Ameritech Publishing, Inc.,
   an Ameritech subsidiary; Ameritech Publishing of Illinois, Inc. (API-
   IL); The Reuben H. Donnelley Corporation (Donnelley); and AM-DON, a
   partnership between Donnelley and API-IL.  Effective January 1,
   1991, the obligations of the individual parties with respect to
   publication of classified directories were assigned to the
   partnership, which does business as DonTech.  Under this agreement,
   DonTech publishes, prints and delivers classified directories and
   the Company provides listings to DonTech and performs the billing
   and collection services for the directories as an agent for the
   partnership.  In consideration for the operations performed by
   Illinois Bell, the partnership pays a guaranteed amount each year
   plus an increment for growth and reimburses the Company for various
   expenses it incurs in connection with its publication of
   alphabetical directories.  In 1994, Illinois Bell exercised its
   option to extend the current agreement through 1999.
   
      Ameritech Services, Inc. (ASI) is a company jointly owned by
   Illinois Bell and the other Ameritech landline communications
   subsidiaries.  ASI provides to those companies human resources,
   technical services, procurement, marketing and regulatory planning,
   as well as labor contract bargaining oversight and coordination.
   ASI acts as a shared resource for the Ameritech subsidiaries
   providing operational support for the Ameritech landline
   communications subsidiaries and integrated communications and
   information systems for all the business units.
   
      In 1996, about 88% of the total operating revenues of the
   Company were from communications services and the remainder
   principally from billing and collection services, rents, directory
   advertising and other miscellaneous nonregulated operations.  About
   70% of the revenues from communications services were attributable
   to intrastate operations.
   
   Regulatory Environment - Federal
   
      Illinois Bell is subject to jurisdiction by the FCC pursuant to
   applicable law.  The FCC prescribes for communications companies a
   uniform system of accounts, rules for apportioning costs between
   regulated and nonregulated services, and the principles and standard
   procedures used to separate regulated property, plant and equipment
   costs, revenues, expenses, taxes and reserves between those
   applicable to interstate services under the jurisdiction of the FCC
   and those applicable to intrastate services under the jurisdiction
   of the respective state regulatory authorities.
   
      The transformation of the local exchange business has been
   underway for some time, even before recent federal legislation.  The
   Company's interstate revenues are now regulated by a price cap
   mechanism rather than by rate-of-return regulation.  The FCC's price
   cap regulatory scheme sets maximum limits on the prices that local
   exchange carriers, including Illinois Bell, can charge for
   interstate access as compensation for the use of their facilities
   for the origination or termination of long distance and other
   communications by other carriers.  The limits are adjusted each year
   to reflect inflation, a productivity factor and certain other cost
   changes.  Under price caps, local exchange carriers have increased
   flexibility to change prices of access services, as well as prices
   for interstate intraLATA and video dial tone service offerings,
   provided they do not exceed the allowed price cap.  Under interim
   changes to the price cap plan, the FCC adopted three
   productivity/sharing options.  Illinois Bell and the other Ameritech
   landline communications subsidiaries elected the 5.3% productivity
   factor which allows the Company to retain all of its earnings,
   whereas election of a lower factor would require earnings to be
   shared with customers.  The FCC has established a rulemaking
   proceeding to consider permanent changes to its price cap regulation
   plan.
   
                                      3
                                      
   <PAGE>
   
      One major regulatory uncertainty concerns access charge reform.
   In December 1996, the FCC laid out its proposals in this area,
   asking for comments on a number of steps it would take to
   restructure the fees to make the system compatible with the pro-
   competitive deregulatory framework established by the Telecom Act.
   This move was the third in a trilogy of FCC actions that it has said
   are designed to foster and accelerate the introduction of efficient
   competition in all telecommunications markets.  In August 1996, the
   FCC released its Interconnection Order to implement the local
   competition provisions of the Telecom Act.  In November 1996, the
   Federal-State Universal Service Joint Board issued its
   recommendations to the FCC for reforming the existing system of
   universal basic telephone service, which is the part of access
   charges used, among other things, to subsidize local service in high
   cost areas of the country.  The goal is to preserve and advance
   universal service in a manner that permits local telephone markets
   to move from monopoly to competition.  The FCC's current access
   charge policies were adopted at the time of the divestiture by AT&T.
   These policies were designed primarily to promote competition in the
   interstate, interexchange market by ensuring that all long distance
   companies would be able to originate and terminate their traffic
   over incumbent local exchange carrier networks at just, reasonable
   and nondiscriminatory rates.  Although these policies contemplated
   long distance competition, they did not attempt to address the
   potential effects of full competition.  Final rules on access
   charges are expected in May 1997.  In a separate proceeding, the FCC
   is working to overhaul the mechanism to determine the actual cost of
   universal service, and how those costs will be recovered.
   
      As part of the process of reforming the interstate access charge
   system, the FCC sought comment on the treatment of Internet and
   other information service providers (sometimes referred to as
   enhanced service providers) that also use the local exchange
   carriers' facilities.  Since the access charge system was
   established in 1983, enhanced service providers have been
   classified, for purposes of the access charge rules, as end users
   rather than carriers and therefore are exempt from access charges.
   The FCC made no specific proposals, but tentatively concluded that
   enhanced service providers should not be subject to access charges
   as currently constituted.
   
   Other FCC Matters
   
      In June 1996, the FCC adopted rules that will allow customers to
   switch local exchange carriers without having to change their phone
   numbers.  Under the rules, by the end of 1998 the nation's one
   hundred largest metropolitan areas must have "number portability"
   that meets FCC standards, and local exchange carriers are required
   to offer temporary number portability, such as remote call
   forwarding, immediately.  The groundwork for number portability was
   already laid in Illinois in March 1996 when the state regulatory
   commission approved a stipulated agreement among Illinois Bell and
   other telecommunications carriers, the first of its kind in the
   nation, to implement number portability as soon as technically
   feasible in the Chicago area, as early as 1997.
   
      In July 1996, the FCC announced that the former Bell operating
   companies of AT&T (Bell Companies), including Ameritech, that
   provide out-of-region long distance service through an affiliate
   will be regulated as "nondominant carriers" as long as they meet
   three requirements.  The interim rules allow the Bell Companies
   nondominant carrier status if their affiliated companies maintain
   accounting records separate from those of the parent, do not jointly
   own transmission or switching equipment with the parent and obtain
   services from the parent at tariffed rates.  Nondominant carriers
   are not subject to price cap regulation and their tariffs take
   effect on one day's notice, compared with at least two weeks for
   dominant carriers.  The FCC plans to establish final rules for Bell
   Company out-of-region services in another rulemaking that began in
   March 1996.
   
      In December 1996, the FCC issued transitional structural and
   accounting rules that apply to the provision of certain services
   provided by the Bell Companies including in-region long distance
   services.  These rules require that certain services be provided
   through a separate affiliate and prohibit joint ownership of
   switching and transmission facilities.  In addition, they call for
   nondiscrimination between the affiliate and nonaffiliate long
   distance carriers, subject to certain exemptions.  The FCC order did
   not resolve the issue of whether Bell Company in-region long
   distance affiliates will be considered nondominant.
   
                                      4
                                      
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   Regulatory Environment - State
   
      Illinois Bell is also subject to regulation by the Illinois
   Commerce Commission (ICC) with respect to certain intrastate rates
   and services.  Advantage Illinois, approved by the ICC in 1994,
   provided a new framework for regulating Illinois Bell by capping
   prices for noncompetitive services.  At the same time, the Company's
   monthly line charge for residential customers and residential
   calling rates within local calling areas was capped at November 1994
   levels for five years.  In return for these price protections, the
   ICC removed a ceiling on Illinois Bell's earnings to reflect the
   increasingly competitive communications industry and to create
   incentive to invest in new technology, develop new services and
   improve efficiency.
   
      In April 1996, Illinois Bell implemented Dial 1+ capability in
   its local toll markets in Illinois, giving customers the ability to
   choose an alternate carrier for intraLATA toll calls by dialing 1
   before the phone number.  The ICC issued an order in June that set
   rules and pricing mechanisms for interconnection, unbundled network
   elements and the wholesale discount to resellers of local services.
   The order was in response to an AT&T petition that requested a
   wholesale price for retail services of Illinois Bell and another
   Illinois local exchange carrier.  In July 1996, Illinois Bell
   implemented a $31 million general rate reduction, including price
   cuts for residential calling, Caller ID and other optional features
   and monthly line charges for business customers statewide.  This was
   the third consecutive year of price reductions under the Advantage
   Illinois plan totaling $164 million.  In November, the ICC allowed
   Ameritech's statement of generally available terms and conditions
   for interconnection to go into effect, subject to further review by
   the ICC.  In February 1997, a Second Interim Order was issued by the
   ICC which incorporated updates based on an interconnection agreement
   recently approved by the commission.  Ameritech has asked all five
   state commissions in its region to declare that its statement of
   generally available terms and conditions for interconnection meets
   the competitive checklist under the Telecom Act.
   
   Long Distance Services
   
      Under the Telecom Act, Illinois Bell and other Bell Companies
   must open the local market to competition by implementing a 14-point
   checklist before they can offer interLATA long distance service to
   their local landline customers.  The FCC will determine whether or
   not a Bell Company has satisfied the statutory criteria, including
   the competitive checklist, compliance with structural and accounting
   rules and whether its entry into long distance is consistent with
   the public interest.  A Bell Company is restricted from providing
   interLATA long distance service until the FCC determines that the
   statutory criteria have been met.  The FCC will give substantial
   weight to Department of Justice recommendations in reviewing a
   carrier's entry into the market.  In preparation, Illinois Bell has
   negotiated or arbitrated numerous agreements with competitors to
   allow interconnection access to the Company's network elements at
   cost-based rates and purchase of its local services at discounted,
   wholesale rates for resale to the public.  The FCC has 90 days to
   act upon a Bell Company's application to provide interLATA long
   distance service.
   
      InterLATA long distance is a $2.8 billion market in the
   Company's local service area.  Ameritech expects to offer landline
   interLATA long distance service within its region in 1997.  However,
   FCC rules require that interLATA long distance service be offered by
   a separate subsidiary of Ameritech.  Accordingly, Ameritech's entry
   into this market will not generate long distance revenues for
   Illinois Bell.  Ameritech is also certified in all states outside
   its five-state region.  Long distance carriers, WorldCom, Inc. and
   Teleglobe Inc. will complete long distance calls for Ameritech
   outside the region on a resale basis.
   
                                      5
                                      
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   Competition -- Evolution of the Industry
   
      Because of the Telecom Act, the communications landscape is
   rapidly changing.  One objective of the new law was to foster local
   exchange competition by establishing a regulatory framework to
   govern the provision of local and long distance telecommunications
   services.  It permits the Bell Companies, including Illinois Bell,
   to provide interLATA long distance services only after satisfying
   the conditions of the new laws for opening local markets to
   competition and demonstrating to the FCC that such provision is in
   the public interest.  For the first time in more than 60 years, all
   communications companies are governed by a new set of rules that
   call for competition and open markets, not regulatory management, as
   the basic business environment.  This public policy change opens a
   host of business opportunities for providers of all forms of
   communications, enabling them to become full-service providers of
   voice, video, data, local and long distance services for their
   customers.  As a result of the new law, consumers can expect to see
   more choices and receive greater value for these services.
   
      With the passage of the Telecom Act, Illinois Bell's local
   service market is being opened to competition from long distance
   carriers, cable TV providers and other nontraditional local service
   providers.  Interconnection agreements with these providers and the
   applicable regulations require the Company to allow access to
   network elements at cost-based rates or to provide services for
   resale at discounted, wholesale rates.  Competitive entry by these
   providers may result in some downward pressure on local service
   revenues as a portion of the Company's revenues shift from local
   service at retail rates to network access at wholesale rates.
   
      The Telecom Act will also bring renewed scrutiny of the current
   universal service funding policy.  Historically, network access
   charges have been used to help local exchange carriers ensure
   universal basic telephone service to all customers.  Modifications
   of this policy by the FCC may result in changes to the Company's
   revenue stream related to network access charges.
   
      Although telecom reform was the most dramatic change affecting
   the communications industry in 1996, another industry trend that
   intensified was the number of mergers, alliances and joint ventures.
   Over time, the number, variety and size of competitors will change
   and may include companies with substantial capital, technological
   and marketing resources and wide-ranging service offerings.
   
      It is impossible to predict the specific impact of the Telecom
   Act and other changes in the industry on Illinois Bell's business or
   financial condition.  Notwithstanding the potential for an adverse
   effect on its revenue streams, the Company expects to capture a
   major share of the expected growth in the communications
   marketplace, building on its strengths and branching into new
   services that are a logical extension of its business.
   
   Patents, Trademarks and Licenses
   
      The Company, through its parent, Ameritech, has rights to use
   various patents, copyrights, trademarks and other intellectual
   property which are necessary for it to conduct its present business
   operations.  It is not anticipated that any such intellectual
   property will be subject to expiration or nonrenewal of rights which
   would materially and adversely affect the Company.
   
                                      6
                                      
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   Illinois Bell's Human Resources
   
      As of December 31, 1996, Illinois Bell employed 14,785 persons,
   a nominal decrease from 14,791 as of December 31, 1995.  In 1996,
   Ameritech commenced a ten-year agreement with Integrated Systems
   Solutions Corporation (ISSC), a subsidiary of IBM, to perform
   certain information technology services formerly performed by the
   Ameritech landline communications companies, and to assume
   responsibility for consolidation of Ameritech's data centers.
   Approximately 100 management employees of the Company were offered
   and accepted employment with ISSC.
   
      The Communications Workers of America (CWA) and the
   International Brotherhood of Electrical Workers (IBEW) represent
   more than 12,000 of the Company's employees.  Of those so
   represented, about 15% are represented by the CWA and about 85% are
   represented by the IBEW, both of which are affiliated with the AFL-
   CIO.  Current three-year contracts expire in the summer of 1998.
   
   Item 2.   Properties.
   
      The properties of Illinois Bell do not lend themselves to
   description by character and location of principal units.  As of
   December 31, 1996, the Company's investment in property, plant and
   equipment consisted of the following:
   
     Land and buildings..................................       9%
     Central office equipment............................      39
     Cable, wiring and conduit...........................      43
     Other...............................................       8
     Under construction..................................       1
                                                              ---
                                                              100%

      Central office equipment includes analog and digital switching
   equipment, transmission equipment and related facilities.  Buildings
   are principally central offices.  Cable, wiring and conduit
   constitute outside plant, which include poles, as well as cable,
   conduit and wiring primarily above or under public roads, highways
   or streets or above or under private property.  Substantially all of
   the installations of central office equipment and administrative
   offices are located in buildings owned by the Company and situated
   on property it owns.  Many garages and business offices and some
   installations of central office equipment and administrative offices
   are in leased quarters.
   
      Capital expenditures, the single largest use of Company funds,
   were as follows for the last five years (in millions):
   
        1992      ........................................    $579
        1993      ........................................     537
        1994      ........................................     503
        1995      ........................................     490
        1996      ........................................     632

      Illinois Bell has been making and expects to continue to make
   large capital expenditures to respond to the market's demand for a
   modern, efficient and productive network.  The total investment in
   property, plant and equipment increased from about $7.9 billion as
   of December 31, 1991, to $8.8 billion as of December 31, 1996, after
   giving effect to retirements, but before deducting accumulated
   depreciation at either date.
   
      Under the Advantage Illinois plan, the Company committed to
   making $3.0 billion in capital and other network expenditures over
   the five year period ending 1999.  This commitment has been
   clarified recently to include the capital expenditures of Illinois
   Bell and specifically exclude the capital expenditures of other
   Ameritech subsidiaries in Illinois.
   
                                      7
                                      
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   Item 3.   Legal Proceedings.
   
   Pre-Divestiture Contingent Liabilities Agreement
   
      The Court-approved Plan of Reorganization signed in connection
   with AT&T's divestiture effective January 1, 1984 provides for the
   recognition and payment of liabilities that are attributable to
   pre-divestiture events (including transactions to implement the
   divestiture) but that do not become certain until after the
   divestiture.  These contingent liabilities relate principally to
   litigation and other claims with respect to the former Bell
   Companies' rates, taxes, contracts, equal employment matters,
   environmental matters and torts (including business torts, such as
   alleged violations of the antitrust laws).
   
      With respect to such liabilities, under agreements entered into
   at divestiture, AT&T and the Bell Companies will share the costs of
   any judgment or other determination of liability entered by a court
   or administrative agency, the costs of defending the claim
   (including attorneys' fees and court costs) and the cost of interest
   or penalties with respect to any such judgment or determination.
   Except to the extent that affected parties may otherwise agree, the
   general rule is that responsibility for such contingent liabilities
   will be divided among AT&T and the Bell Companies on the basis of
   their relative net investment (defined as total assets less
   accumulated depreciation) as of the effective date of divestiture.
   Different allocation rules apply to liabilities which relate
   exclusively to pre-divestiture interstate or intrastate operations.
   
      In January 1995, Ameritech and the other RHCs agreed to
   terminate the sharing arrangement among the Bell Companies with
   respect to pre-divestiture contingent liabilities for certain
   matters.  AT&T did not enter into the agreement and, accordingly,
   the sharing arrangement remains in effect with respect to AT&T's pre-
   divestiture liabilities and AT&T's share of Bell Company pre-
   divestiture liabilities.
   
      Although complete assurance cannot be given as to the outcome of
   any litigation, in the opinion of the Company's management, any
   monetary liability or financial impact to which Illinois Bell would
   be subject after final adjudication of all of the foregoing actions
   would not be material in amount to the Company.
   

                                      8

<PAGE>
                                   PART II
                                      
Item 6.  Selected Financial and Operating Data.

                       ILLINOIS BELL TELEPHONE COMPANY
                    SELECTED FINANCIAL AND OPERATING DATA
                            (Dollars in Millions)
                                      
                               1996      1995      1994      1993      1992
                               ----      ----      ----      ----      ----
Revenues
 Local service...........  $2,105.9  $1,958.4  $1,919.4  $1,834.2  $1,768.4
 Interstate
  network access.........     773.1     757.5     734.9     701.5     688.0
 Intrastate
  network access.........     103.5      95.0      92.3      80.4      79.2
 Long distance...........     251.1     246.4     226.7     162.3     162.8
 Other...................     429.5     356.7     304.7     297.0     283.5
                           --------  --------  --------  --------  --------
Total....................   3,663.1   3,414.0   3,278.0   3,075.4   2,981.9
Operating expenses*......   2,676.7   2,396.8   2,648.6   2,307.5   2,248.1
                           --------  --------  --------  --------  --------
Operating income.........     986.4   1,017.2     629.4     767.9     733.8
Interest expense.........     116.3     117.2     105.7     117.5     112.9
Other (income) expense,
 net.....................     (10.7)     (7.5)     (9.0)     12.3       6.1
Income taxes.............     365.9     334.2     206.3     220.9     201.4
                           --------  --------  --------  --------  --------
Income before
 extraordinary item
 and cumulative effect of
 changes in accounting
 principles..............     514.9     573.3     326.4     417.2     413.4
Extraordinary item
 and cumulative effect of
 changes in accounting
 principles**............       -         -      (728.6)      -      (588.6)
                           --------  --------  --------  --------  --------
Net income (loss)........  $  514.9  $  573.3  $ (402.2) $  417.2  $ (175.2)
                           --------  --------  --------  --------  --------
Total assets.............  $5,190.3  $4,980.3  $4,797.3  $6,176.2  $6,095.2
Property, plant
 and equipment, net......  $3,829.9  $3,755.3  $3,809.5  $5,038.5  $4,995.7
Capital expenditures,
 net.....................  $  631.8  $  489.8  $  503.0  $  536.9  $  579.2
Long-term debt...........  $1,012.3  $1,061.2  $1,062.2  $1,077.0  $1,330.1
Debt ratio...............      57.7 %    56.5 %    58.9 %    47.6 %    46.9 %
Return on average
 equity..................      40.8 %    51.7 %   (22.8)%    22.3 %    (9.7)%
Return on average
 total capital...........      20.9 %    24.8 %    (8.3)%    14.7 %    (1.8)%
Pretax interest
 coverage................       8.6       9.0       6.1       6.4       6.4
Customer lines -
 at end of year (000's)..     6,473     6,258     5,983     5,763     5,586
Customer lines served by -
 Digital electronic
  offices................      82.6 %    82.0 %    81.5 %    64.6 %    50.8 %
 Analog electronic
  offices................      17.4 %    18.0 %    18.5 %    35.4 %    49.2 %
Customer lines
 per employee............       438       423       382       324       295
Employees -
 at end of year..........    14,785    14,791    15,678    17,785    18,914
-------------------
 
   * As  discussed  in  Note  D  to  the  financial  statements,  1995
     operating expenses include a net work force restructuring  credit
     of  $57.1  million,  while  1994  operating  expenses  include  a
     nonmanagement work force restructuring charge of $196.5 million.
     
 **  As  discussed  in  Note I, the Company had  a  noncash  after-tax
     extraordinary  charge in 1994 of $728.6 million as  a  result  of
     discontinuing  the  application  of  FAS  71.   The  Company  had
     accounting  changes in 1992 for FAS 106 and FAS  112  aggregating
     $588.6 million, after tax.
 
                                      9
 
 <PAGE>
 
   Item 7.   Management's Discussion and Analysis of Results of Operations.
             (Dollars in Millions)
   
      Following is a discussion and analysis of the results of
   operations of the Company for the year ended December 31, 1996 and
   for the year ended December 31, 1995, which is based on the
   Statements of Income and Accumulated Deficit.  Other pertinent data
   is also set forth in Selected Financial and Operating Data.
   
   Results of Operations
   
   Revenues
   
      Total operating revenues were $3,663.1 million for 1996 and
   $3,414.0 million for 1995.  The increase of $249.1 million or 7.3%
   consisted of the following:
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Local service.........  $2,105.9  $1,958.4   $ 147.5      7.5

      Local service revenues include basic monthly service fees and
   usage charges, fees for call management services, installation and
   connection charges and public phone revenues.  The increase in local
   service revenues in 1996 as compared with 1995 was due largely to
   higher network usage volumes, resulting primarily from growth in the
   number of access lines, which increased 3.4% to 6,473,000 as of
   December 31, 1996 as compared with 6,258,000 as of December 31,
   1995.  Greater sales of call management services, such as call
   forwarding, call waiting and Caller ID, also contributed to the
   increase, as did the impact of a refund to certain business
   customers that unfavorably affected 1995 revenues.  This increase
   was partially offset by net rate decreases.
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Network access
          Interstate .........  $  773.1  $  757.5   $  15.6      2.1
          Intrastate .........     103.5      95.0       8.5      8.9

      Network access revenues are fees charged to interexchange
   carriers that use the Company's local landline communications
   network to connect customers to their long distance network.  In
   addition, end users pay flat rate access fees to connect to the long
   distance network.  These revenues are generated from both interstate
   and intrastate services.
   
      The increase in network access revenues in 1996 was due
   primarily to an increase in network minutes of use resulting from
   overall growth in the volume of calls handled for interexchange
   carriers.  Minutes of use related to interstate and intrastate calls
   increased by 9.1% and 29.4%, respectively, in 1996 compared with the
   prior year.
   
      The increase in interstate network access revenues was offset by
   net rate reductions.  The increase in intrastate network access
   revenues was offset primarily by a refund to interexchange carriers
   related to certain payphone use fees in the second quarter of 1996,
   as well as net rate reductions.
   
                                     10
                                      
<PAGE>
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Long distance.........  $  251.1  $  246.4   $   4.7      1.9

      Long distance service revenues are derived from customer calls to
   locations outside of their local calling areas, but within the same
   Local Access and Transport Area (LATA).  The increase in long
   distance service revenues in 1996 as compared with 1995 was due
   primarily to higher network usage, as well as increased revenues
   related to surcharges collected for third-party credit card calls.
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Other.................  $  429.5  $  356.7   $  72.8     20.4

      Other revenues include revenues derived from directory
   advertising, billing and collection services, inside wire
   installation and maintenance services and other miscellaneous
   services.  The increase in other revenues in 1996 as compared with
   1995 was due to growth in voice messaging, equipment sales and other
   nonregulated services, as well as increases in revenues from inside
   wire installation and maintenance services.  These increases were
   partially offset by a decrease in billing and collection services,
   as certain long distance carriers began direct billing of their own
   customers in 1996.
   
   Operating Expenses
   
      Total operating expenses in 1996 increased by $279.9 million or
   11.7% to $2,676.7 million.  The increase was partially attributable
   to the 1994 work force restructuring, which resulted in a credit of
   $57.1 million ($30.4 million after-tax) in 1995 related primarily to
   settlement gains from lump-sum pension payments to former employees,
   partially offset by fourth quarter charges for planned work force
   reductions due to data center consolidations, increased force costs
   related to the work force restructuring started in 1994 and a charge
   to write down certain data processing equipment in connection with
   information technology restructuring.  Total operating expenses also
   increased in 1996 due to increases in other operating expenses, such
   as cost of sales, uncollectibles and affiliated services, as
   discussed below.
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Employee-related
         expenses.............  $  795.1  $  789.2   $   5.9      0.7

      The increase in employee-related expenses for 1996 was primarily
   due to increases in wage rates and overtime expenses, and an
   increase in payroll taxes.  These increases were partially offset by
   a decrease in benefit expenses.
   
      In September 1995, union agreements were ratified by the
   Communications Workers of America (CWA) and the International
   Brotherhood of Electrical Workers (IBEW).  The new contracts and
   wage increases were retroactive to June 25, 1995 for the IBEW and
   August 6, 1995 for the CWA.  The contracts include basic wage
   increases of 10.9% (compounded at the maximum wage rate) over three
   years and a signing bonus of $500 to eligible employees upon
   ratification.  In addition, union employees now receive their annual
   bonuses in the form of Ameritech stock instead of cash, beginning
   with the bonus for 1995 and continuing for the remaining years of
   the labor contracts.  Both contracts address wages, benefits,
   pensions, employment security, training and retraining and other
   conditions of employment.  Most of the Company's nonmanagement work
   force (about 85% of total employees) is represented by the two
   unions.
   
      There were 14,785 employees as of December 31, 1996, compared
   with 14,791 as of December 31, 1995.
   
                                     11
                                      
<PAGE>
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Depreciation and
         amortization.........  $  570.4  $  537.9   $  32.5      6.0

      The increase in depreciation and amortization expense in 1996
   was due to higher depreciation as a result of higher average plant
   balances and the use of higher depreciation rates in certain plant
   categories due to shorter depreciable lives established in 1994.
   The increase was partially offset by a decrease in computer
   equipment depreciation.
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Other operating
         expenses.............  $1,219.4  $1,060.4   $ 159.0     15.0

      The increase in other operating expenses for 1996 was due to
   increases in uncollectibles and advertising and other expenses
   related to increased sales efforts for equipment and call management
   services, such as voice messaging and other nonregulated services.
   Higher contract and affiliated services expenses related primarily
   to systems programming and reengineering also contributed to the
   increase, as did an increase in cost of sales.
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Restructuring (credits)
         charges..............  $    -    $  (57.1)  $  57.1    n/a

      As discussed more fully in Note D, the Company significantly
   reduced its nonmanagement work force during 1994 and 1995 by 3,503
   employees.  New employees with different skills were added during
   this period to accommodate growth and meet staffing requirements for
   new business opportunities.  As of December 31, 1995, all 3,503
   employees had left the Company, including 803 leaving in 1995.
   Pretax charges totaling $196.5 million ($118.4 million after-tax)
   related to the work force reductions were recorded in 1994.  Noncash
   settlement gains of $101.4 million were recorded in 1995, associated
   primarily with lump-sum pension payments to former employees,
   partially offset by increased force costs related to the
   restructuring started in 1994, as well as a charge to write down
   certain data processing equipment to net realizable value.
   
      The restructuring program was recorded as follows:
   
                                  
                                  Gross               Net Program Cost
                                 Program  Settlement  ----------------
                                  Cost      Gains    Pretax   After-tax
                                   ----     -----    ------   ---------
    1995......................  $  44.3   $(101.4)  $ (57.1)   $ (30.4)
    1994......................    291.4     (94.9)    196.5      118.4
                                -------   -------   -------    -------
      Program total...........  $ 335.7   $(196.3)  $ 139.4    $  88.0
                                =======   =======   =======    =======

      
      Additional employees left the Company in 1996 as a result of the
   consolidation of data centers and additional work force reductions
   previously discussed.  No restructuring charges or credits were
   recorded in 1996.
   
      The work force restructuring program reduced annual employee-
   related costs by approximately $50 thousand per departing employee.
   The savings are being partially offset by the hiring of new
   employees as discussed above.
   
                                     12
                                      
<PAGE>
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Taxes other than
         income taxes.........  $   91.8  $   66.4   $  25.4     38.3

      Taxes other than income taxes consist of property taxes, gross
   receipts taxes and other taxes not directly related to earnings.
   The increase in taxes other than income taxes in 1996 was primarily
   due to higher property tax rates and assessed valuations, as well as
   the effect of a favorable prior year impact of legislation involving
   property tax reforms.  Capital stock taxes also increased due to the
   effects of a favorable true-up adjustment recorded in 1995 and
   higher accrual levels in 1996.
   
   Other Income and Expenses
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Interest expense......  $  116.3  $  117.2   $  (0.9)    (0.8)

      The decrease in interest expense in 1996 was due to a decrease
   in interest on borrowings from the Ameritech short-term pool, as
   well as decreased miscellaneous interest expense and increased
   capitalized interest.
   
                                                       Change
                                                       Income   Percent
                                    1996      1995   (Expense)  Change
                                    ----      ----    --------  ------
        Other income,
         net..................  $   10.7  $    7.5   $   3.2     42.7

      Other income, net includes earnings related to the Company's
   investments, interest income and other nonoperating items.  Other
   income in 1996 increased primarily because the Company's share of
   equity earnings from ASI increased, as did interest income.
   
                                                      Increase  Percent
                                    1996      1995   (Decrease) Change
                                    ----      ----    --------  ------
        Income taxes..........  $  365.9  $  334.2   $  31.7      9.5

      Income taxes increased in 1996 due primarily to a revision to
   deferred taxes resulting from the Company's discontinuance of
   regulatory accounting.  A modification to how state income taxes are
   determined within Ameritech contributed to the increase as well.
   
                                     13
                                      
   <PAGE>
   
   Other Matters
   
   New accounting pronouncements
   
      In June 1996, the Financial Accounting Standards Board (FASB)
   issued Statement of Financial Accounting Standards (FAS) No. 125,
   "Accounting for Transfers and Servicing of Financial Assets and
   Extinguishments of Liabilities." As amended by FAS 127, this
   statement establishes standards of accounting for transfers of
   assets in which the transferor has some continuing involvement with
   the assets transferred or with the transferee.  It also clarifies
   the accounting for arrangements whereby assets are set aside for the
   extinguishment of a liability.  The statement is generally effective
   for transactions occurring after December 31, 1996, with early or
   retroactive application prohibited.  The Company does not expect
   adoption of this standard will have a material impact on its
   financial statements.
   
      In October 1996, the American Institute of Certified Public
   Accountants (AICPA) issued Statement of Position (SOP) 96-1,
   "Environmental Remediation Liabilities." This SOP provides
   authoritative guidance on specific accounting issues related to the
   recognition, measurement, display and disclosure of environmental
   remediation liabilities.  The SOP addresses only those actions
   undertaken in response to a threat of litigation or assertion of a
   claim.  It does not address accounting for pollution control costs
   with respect to current operations or for costs of future site
   restoration or closure required upon cessation of operations.  The
   SOP is effective for fiscal years beginning after December 15, 1996.
   The Company does not expect adoption of this standard will have a
   material impact on its financial statements.
   
   Competition
   
      Because of the Telecom Act, the communications landscape is
   rapidly changing.  The new law, among other things, was designed to
   foster local exchange competition by establishing a regulatory
   framework to govern the provision of local and long distance
   telecommunications services.  The 1996 Telecom Act permits the Bell
   Companies to provide interLATA long distance services only after
   satisfying the conditions of the new law for opening local markets
   to competition and demonstrating to the FCC that such provision is
   in the public interest.  For the first time in more than sixty
   years, all communications companies are governed by a new set of
   rules that call for competition and open markets, not regulatory
   management, as the basic business environment.  This public policy
   change opens a host of business opportunities for providers of all
   forms of communications, enabling them to become full service
   providers of voice, video, data, local and long distance services
   for their customers.  As a result of the new law, consumers can
   expect to see more choices and competitive prices for these and
   other services.
   
      With the passage of the Telecom Act, the Company's local service
   markets are being opened to competition from interexchange carriers,
   cable TV providers and other nontraditional local service providers.
   Interconnection agreements with these providers and the applicable
   regulations require the Company to allow access to network elements
   at cost-based rates or to provide services for resale at discounted,
   wholesale rates.  Competitive entry by these providers in some
   downward pressure on local service revenues, as a portion of the
   Company's revenue shifts from local service at retail rates to
   network access at wholesale rates.
   
      The Telecom Act will also bring renewed scrutiny of the current
   universal service funding policy.  Historically, network access
   charges have been used to help local exchange carriers ensure
   universal basic telephone service to all customers.  Modifications
   of this policy by the FCC may result in changes to the Company's
   revenue stream related to network access charges.
   
      In 1996, the Company signed a significant number of
   interconnection and resale agreements with competitors, paving the
   way for entry into the interLATA long distance market.  However, FCC
   rules require that interLATA long distance service be offered by a
   separate subsidiary of Ameritech.  Accordingly, Ameritech's entry
   into this market will not generate long distance revenues for
   Illinois Bell.  As a result, the potential revenue decline brought
   by local service competition will not be offset at the Company by
   gains in long distance revenue.
   
                                     14
                                      
   <PAGE>
   
      It is impossible to predict the specific impact of the Telecom
   Act and other changes in the industry on Illinois Bell's business or
   financial condition.  Notwithstanding the potential for an adverse
   effect on its revenue streams, the Company intends to pursue growth
   opportunities in its local exchange business.
   
   Advantage Illinois
   
      On October 11, 1994, the ICC approved an alternative regulation
   proposal - Advantage Illinois- that was initially filed by the
   Company in December 1992.  The ICC order eliminated rate-of-return
   regulation and replaced it with price regulation.
   
      The order included initial rate reductions of $93.2 million.
   These reductions included the elimination of monthly touch-tone
   charges for all customers and the lowering of monthly charges for
   business customers who have their own PBX call processing equipment.
   Other reductions included lower usage rates for certain calls and
   lower charges for carrier access.  The order also imposed a five-
   year cap on basic residential rates and also allowed the Company to
   set its own depreciation rates.
   
      Subsequent rate changes related to noncompetitive services were
   implemented in July 1995 and July 1996 and will be implemented each
   July thereafter based on changes in the Gross Domestic Product Price
   Index (GDPPI) and other factors for the previous calendar year.
   
      The Company filed with the ICC an Application for Rehearing of
   various portions of the Order.  The ICC denied rehearing.  On
   appeal, the Illinois Appellate Court for the Second District denied
   the Company's appeal, but reversed the Commission's Order based on
   the appeal of another party on the ground that the Commission had
   failed to make a statutorily-required determination that the
   Company's rate of return on investment, as approved by the
   Commission, did not include any incremental risk or increased cost
   of capital as a direct or indirect result of the Company's
   affiliation with Ameritech or other unregulated companies.  The case
   was remanded to the Commission on January 10, 1997, and the
   Commission has requested comments from the parties regarding the
   appropriate procedure on remand and whether the record should be
   reopened for additional evidence.  The Company has taken the
   position that the Commission should make the required finding on the
   existing record, and that no changes to the Company's rate of return
   on investment are warranted.
   
   Dial 1+
   
      The Company implemented intra-MSA (Market Service Area; similar
   to LATA boundaries but within state borders) presubscription on
   April 7, 1996 pursuant to the Customers First Order issued by the
   ICC on April 7, 1995.  Presubscription allows customers to select
   one carrier for inter-MSA interstate calling and a second carrier
   for non-local intra-MSA calls.  Non-local intra-MSA calls include
   all Band C calls (more than 15 miles) plus intra-MSA toll calls
   between the Company's territory and that of an independent company.
   As a result, the Company's customers may now select an alternate
   long distance carrier for Band C calls by presubscribing their Band
   C calls and intra-MSA toll calls to that carrier.
   
   Illinois rate reductions
   
      Effective July 11, 1996, the Company reduced rates by $31.0
   million annually under the adjustment process of the Advantage
   Illinois plan discussed above.  These rate reductions primarily
   impact local service revenues.
   
                                     16
                                      
   <PAGE>
   
   Wholesale/Resale Order
   
      On June 26, 1996, the ICC approved an Order establishing
   wholesale prices to be made available to resellers.  Based on the
   discount from retail levels required, the Company will experience
   lower operating margins on those services purchased at wholesale.
   The potential impact cannot be quantified because the demand shift
   to resellers is unknown.
   
   Private securities litigation reform act safe harbor statement
   
      Except for historical information contained herein, the above
   discussion contains certain forward-looking statements that involve
   potential risks and uncertainties.  The Company's future results
   could differ materially from those discussed herein.  Factors that
   could cause or contribute to such differences include, but are not
   limited to, changes in economic and market conditions, effects of
   state and federal regulation and the impact of new technologies.
   Readers are cautioned not to place undue reliance on these forward-
   looking statements, which speak only as of the date hereof.  The
   Company undertakes no obligation to revise or update these forward-
   looking statements to reflect events or circumstances that arise
   after the date hereof or to reflect the occurrence of unanticipated
   events.
   
                                     16
                                      
   <PAGE>
   
   Item 8.  Financial Statements and Supplementary Data.
   
                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                      
   To the Shareowner of Illinois Bell Telephone Company
   
      We have audited the accompanying balance sheets of Illinois Bell
   Telephone Company (an Illinois Corporation) as of December 31, 1996
   and 1995, and the related statements of income and accumulated
   deficit and cash flows for each of the three years in the period
   ended December 31, 1996.  These financial statements and the
   schedule referred to below are the responsibility of the Company's
   management.  Our responsibility is to express an opinion on these
   financial statements and this schedule based on our audits.
   
      We conducted our audits in accordance with generally accepted
   auditing standards.  Those standards require that we plan and
   perform the audit to obtain reasonable assurance about whether the
   financial statements are free of material misstatement.  An audit
   includes examining, on a test basis, evidence supporting the amounts
   and disclosures in the financial statements.  An audit also includes
   assessing the accounting principles used and significant estimates
   made by management, as well as evaluating the overall financial
   statement presentation.  We believe that our audits provide a
   reasonable basis for our opinion.
   
      In our opinion, the financial statements referred to above
   present fairly, in all material respects, the financial position of
   Illinois Bell Telephone Company as of December 31, 1996 and 1995,
   and the results of its operations and its cash flows for each of the
   three years in the period ended December 31, 1996, in conformity
   with generally accepted accounting principles.
   
      As discussed in Note I to the financial statements, the Company
   discontinued applying the provisions of Statement of Financial
   Accounting Standards No. 71, "Accounting for the Effects of Certain
   Types of Regulation," in 1994.
   
      Our audits are made for the purpose of forming an opinion on the
   basic financial statements taken as a whole.  The financial
   statement schedule included in Item 14(a)(2) is presented for
   purposes of complying with the Securities and Exchange Commission's
   rules and is not a required part of the basic financial statements.
   This schedule has been subjected to the auditing procedures applied
   in the audits of the basic financial statements and, in our opinion,
   fairly states in all material respects the financial data required
   to be set forth therein in relation to the basic financial
   statements taken as a whole.
   
                                         ARTHUR ANDERSEN LLP
   Chicago, Illinois
   January 13, 1997
   
                                     17
   
<PAGE>
                       ILLINOIS BELL TELEPHONE COMPANY
                STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
                            (Dollars in Millions)
                                      
                                              Year Ended December 31,
                                              -----------------------
                                            1996        1995        1994
                                            ----        ----        ----
 Revenues..........................    $ 3,663.1   $ 3,414.0   $ 3,278.0
                                       ---------   ---------   ---------
 Operating expenses................
   Employee-related expenses.......        795.1       789.2       827.9
   Depreciation and amortization...        570.4       537.9       527.1
   Other operating expenses........      1,219.4     1,060.4     1,012.6
   Restructuring (credits) charges.          -         (57.1)      196.5
   Taxes other than income taxes...         91.8        66.4        84.5
                                       ---------   ---------   ---------
                                         2,676.7     2,396.8     2,648.6
                                       ---------   ---------   ---------
 Operating income..................        986.4     1,017.2       629.4
 Interest expense..................        116.3       117.2       105.7
 Other income, net.................         10.7         7.5         9.0
                                       ---------   ---------   ---------
 Income before income taxes and
  extraordinary item...............        880.8       907.5       532.7
 Income taxes......................        365.9       334.2       206.3
                                       ---------   ---------   ---------
 Income before extraordinary item..        514.9       573.3       326.4
 Extraordinary item................          -           -        (728.6)
                                       ---------   ---------   ---------
 Net income (loss).................        514.9       573.3      (402.2)
 Reinvested earnings (deficit),
  beginning of year................       (465.8)     (608.5)      133.2
 Less, dividends...................        432.7       430.6       398.5
                                       ---------   ---------   ---------
 Accumulated deficit,
  end of year......................    $  (383.6)  $  (465.8)  $  (608.5)
                                       =========   =========   =========



The accompanying notes are an integral part of the financial statements.

                                     18

<PAGE>
                       ILLINOIS BELL TELEPHONE COMPANY
                               BALANCE SHEETS
                            (Dollars in Millions)
                                      
                                                  As of December 31,
                                                  ------------------
                                                   1996        1995
                                                   ----        ----
  Assets

   Current assets
     Cash and temporary
      cash investments.....................   $     -     $     0.3
     Receivables, net
      Customers and agents
       (less allowance for
       uncollectibles of $81.6 and
       $48.8, respectively)................       836.9       745.8
      Ameritech and affiliates.............        53.0        39.5
      Other................................        23.4        29.9
     Material and supplies.................        18.7        17.8
     Prepaid and other.....................        17.0        26.4
                                              ---------   ---------
                                                  949.0       859.7
                                              ---------   ---------
   Property, plant and equipment
     In service............................     8,781.8     8,382.7
     Under construction....................        55.1        62.0
                                              ---------   ---------
                                                8,836.9     8,444.7
     Less, accumulated depreciation........     5,007.0     4,689.4
                                              ---------   ---------
                                                3,829.9     3,755.3
                                              ---------   ---------
   Investments, principally
    in affiliates..........................        85.6        85.5
   Other assets and deferred charges.......       325.8       279.8
                                              ---------   ---------
  Total assets.............................   $ 5,190.3   $ 4,980.3
                                              =========   =========
  Liabilities and shareowner's equity

   Current liabilities
     Debt maturing within one year
      Ameritech............................   $   735.3   $   544.0
      Other................................        51.5         1.3
     Accounts payable
      Ameritech Services, Inc. (ASI).......       178.7       197.0
      Ameritech and affiliates.............        20.8        11.9
      Other................................       244.1       225.1
     Other current liabilities.............       292.1       362.0
                                              ---------   ---------
                                                1,522.5     1,341.3
                                              ---------   ---------
   Long-term debt..........................     1,012.3     1,061.2
                                              ---------   ---------
   Deferred credits and other long-term liabilities
     Accumulated deferred
      income taxes.........................       244.9       220.8
     Unamortized investment
      tax credits..........................        49.6        61.0
     Postretirement benefits
      other than pensions..................       921.1       932.5
     Long-term payable to ASI..............        25.5        27.3
     Other.................................        93.2        97.2
                                              ---------   ---------
                                                1,334.3     1,338.8
                                              ---------   ---------
   Shareowner's equity
     Common stock ($20 par value;
      100,000,000 shares
      authorized; 81,938,121
      issued and outstanding)..............     1,638.8     1,638.8
     Proceeds in excess of par value.......        66.0        66.0
     Accumulated deficit...................      (383.6)     (465.8)
                                              ---------   ---------
                                                1,321.2     1,239.0
                                              ---------   ---------
  Total liabilities and
   shareowner's equity.....................   $ 5,190.3   $ 4,980.3
                                              =========   =========

  The accompanying notes are an integral part of the financial statements.

                                     19
                                      
   <PAGE>
   
                       ILLINOIS BELL TELEPHONE COMPANY
                          STATEMENTS OF CASH FLOWS
                            (Dollars in Millions)
                                      
                                              Year Ended December 31,
                                              -----------------------
                                            1996        1995        1994
                                            ----        ----        ----
Cash flows from operating activities:
 Net income (loss).................    $   514.9   $   573.3   $  (402.2)
 Adjustments to net income (loss):
   Extraordinary item, net of tax..          -           -         728.6
   Restructuring (credits) charges,
    net of tax.....................          -         (30.4)      118.4
   Depreciation and amortization...        570.4       537.9       527.1
   Deferred income taxes, net......         18.8        76.8        29.5
   Investment tax credits, net.....        (11.4)      (14.2)      (14.6)
   Capitalized interest............         (3.6)       (2.8)       (3.3)
   Change in accounts receivable...        (98.1)     (119.0)      (32.9)
   Change in material and supplies.        (11.2)       (9.4)        3.8
   Change in certain other
    current assets.................          9.4         8.1       (24.6)
   Change in accounts payable......          9.6       (73.3)      117.3
   Change in certain other
    current liabilities............        105.2      (100.6)      (51.4)
   Change in certain noncurrent
    assets and liabilities.........        (66.7)       (0.3)      (41.5)
   Other operating activities, net.        (16.8)      (22.2)       (4.9)
                                       ---------   ---------   ---------
Net cash from operating
  activities.......................      1,020.5       823.9       949.3
                                       ---------   ---------   ---------

Cash flows from investing activities:
 Capital expenditures, net.........       (628.8)     (487.0)     (499.7)
 Proceeds from (costs of)
   disposals of property,
   plant and equipment, net........          2.2         7.8        (0.7)
 Other investing activities, net...          0.2         0.8         -
                                       ---------   ---------   ---------
Net cash from investing
  activities.......................       (626.4)     (478.4)     (500.4)
                                       ---------   ---------   ---------

Cash flows from financing activities:
 Intercompany financing, net.......        191.3        67.3       (17.5)
 Issuances of long-term debt.......          -           -         196.1
 Retirements of long-term debt.....          -         (31.2)     (301.2)
 Dividend payments.................       (586.9)     (388.4)     (333.9)
 Other financing activities, net...          1.2         -           -
                                       ---------   ---------   ---------
Net cash from financing
  activities.......................       (394.4)     (352.3)     (456.5)
                                       ---------   ---------   ---------

Net decrease in cash and
  temporary cash investments.......         (0.3)       (6.8)       (7.6)
Cash and temporary cash
  investments, beginning of year...          0.3         7.1        14.7
                                       ---------   ---------   ---------
Cash and temporary cash
  investments, end of year.........    $     -     $     0.3   $     7.1
                                       =========   =========   =========


The accompanying notes are an integral part of the financial statements.

                                     20

<PAGE>
                       ILLINOIS BELL TELEPHONE COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                            (Dollars in Millions)
                                      
   A. Significant Accounting Policies
   
      Nature of Operations - Illinois Bell Telephone Company (the
   Company) is a wholly owned subsidiary of Ameritech Corporation
   (Ameritech).  Ameritech is the parent of the Company; Indiana Bell
   Telephone Company, Incorporated; Michigan Bell Telephone Company;
   The Ohio Bell Telephone Company; and Wisconsin Bell, Inc. (referred
   to collectively as the "Ameritech landline communications
   subsidiaries").  The Company provides a wide variety of
   communications services in Illinois, including local exchange and
   toll service, and network access and telecommunications products.
   
      See discussion of competition and significant new legislation in
   Other Matters in Management's Discussion and Analysis of Results of
   Operations.
   
      Basis of Accounting - The financial statements have been
   prepared in accordance with generally accepted accounting principles
   (GAAP).  The financial statements include the accounts of the
   Company and, through March 31, 1995, its wholly owned subsidiary,
   Illinois Bell Administration Center, Inc. (IBAC).  The subsidiary,
   formed in 1988 to hold a limited partnership interest in a real
   estate venture, was sold in the first quarter of 1995.  All
   significant intercompany transactions have been eliminated.  In
   1994, the Company discontinued following accounting prescribed by
   Statement of Financial Accounting Standards No. 71 (FAS 71),
   "Accounting for the Effects of Certain Types of Regulation."  (See
   Note I).
   
      Use of Estimates - The preparation of financial statements in
   conformity with GAAP requires management to make estimates and
   assumptions that affect the reported amounts of assets and
   liabilities as of the date of the financial statements and the
   reported amounts of revenues and expenses during the reporting
   period.  Actual results could differ from those estimates.
   
      Transactions with Affiliates - The Company has various
   agreements with affiliated companies.  Below is a description of the
   significant arrangements followed by a table of the amounts
   involved.
   
      1.  Ameritech Services, Inc. (ASI) - ASI, an Ameritech-
   controlled affiliate in which the Company has 33% ownership,
   provides planning, development, management, procurement and support
   services to all of the Ameritech landline communications
   subsidiaries.  The Company also provides certain services and
   facilities to ASI.
   
                                        1996        1995       1994
                                        ----        ----       ----
    Purchases of
     materials and charges
     for services from ASI.....    $   790.7   $   733.8   $  739.5
   
    Recovery of
     costs for services
     provided to ASI ..........         19.0        20.1       23.5
   
      2.  Ameritech (the Company's parent) - Ameritech provides
   various administrative, planning, financial and other services to
   the Company.  These services are billed to the Company at cost.
   
                                        1996        1995       1994
                                        ----        ----       ----
    Charges incurred...........    $    42.4   $    34.4   $   32.3
   
                                     21
                                      
   <PAGE>
   
      3.  Ameritech Publishing, Inc. (API), a wholly owned subsidiary
   of Ameritech doing business as Ameritech Advertising Services - The
   Company has a contract with DonTech, a partnership between API and
   the Reuben H. Donnelley Corporation, under which payments are made
   to the Company by DonTech for license fees and billing and
   collection services.
   
                                        1996        1995       1994
                                        ----        ----       ----
    Fees paid to the Company
     by DonTech ...............    $    75.0   $    75.0   $   75.0
   
      4.  Ameritech Information Systems, Inc. (AIS), a wholly owned
   subsidiary of Ameritech - The Company reimburses AIS for costs
   incurred by AIS in connection with the sale of network services by
   AIS employees.
   
                                        1996        1995       1994
                                        ----        ----       ----
    Charges incurred...........    $    34.8   $    25.2   $   17.1
   
      5.  Bell Communications Research, Inc. (Bellcore) - Bellcore
   provides research and technical support to the Company.  ASI has a
   one-seventh ownership interest in Bellcore and bills the Company for
   costs.
   
                                        1996        1995       1994
                                        ----        ----       ----
    Charges incurred...........    $    26.3   $    29.1   $   34.5
   
      Property, Plant and Equipment - Property, plant and equipment
   are stated at original cost.  The provision for depreciation is
   based principally on the straight-line remaining life and the
   straight-line equal life group methods of depreciation applied to
   individual categories of property, plant and equipment with similar
   characteristics.  As a result of the discontinuation of applying FAS
   71 in 1994, the Company recognized shorter, more economically
   realistic lives and increased its accumulated depreciation balance
   by $1,151.5 million. (See Note I).
   
      The following is a summary of average lives (in years) before
   and after the discontinuation of FAS 71:
   
       Asset Category                       Before      After
       --------------                        ------      -----
       Central office equipment
       Digital switching...............         17          7
       Analog switching................    up to 4   obsolete
       Circuit accounts................       8-12          7
       Copper and fiber cable
        and wire facilities ...........      20-32         15
       All other.......................    various    various
      
      Generally, when depreciable plant is retired, the amount at
   which such plant has been carried in property, plant and equipment
   in service is charged to accumulated depreciation.  The cost of
   maintenance and repairs of plant is charged to expense.
   
      Investments - The Company's investment in ASI (33% ownership and
   $84.4 million as of December 31, 1996) is reflected in the financial
   statements using the equity method of accounting.  All other
   investments are carried at cost.  Derivative transactions, if any,
   are executed by Ameritech.  The Company had no derivative
   transactions in 1996 or 1995.
   
      Material and Supplies - Inventories of new and reusable material
   and supplies are stated at the lower of cost or market with cost
   generally determined on an average cost basis.
   
                                     22
                                      
   <PAGE>
   
      Income Taxes - The Company is included in the federal income tax
   return filed by Ameritech and its subsidiaries.  The Company's
   provision for income taxes is determined effectively on a separate
   company basis.
   
      Deferred tax assets and liabilities are determined at the end of
   each period based on differences between the financial statement
   bases of assets and liabilities and the tax bases of those same
   assets and liabilities, using the currently enacted statutory tax
   rates.  Deferred income tax expense is measured by the change in the
   net deferred income tax asset or liability during the year.
   
      The Company uses the deferral method of accounting for
   investment tax credits whereby credits realized are being amortized
   as reductions to tax expense over the life of the plant that gave
   rise to the credits.
   
      Temporary Cash Investments - Temporary cash investments are
   stated at cost which approximates market value.  The Company
   considers all highly liquid, short-term investments with an original
   maturity of three months or less to be cash equivalents.
   
      Advertising Costs - Advertising costs are generally charged to
   operations as incurred.
   
      Revenue Recognition - Revenues are generally recognized as
   services are provided or products are delivered to customers.
   Certain local telephone revenues are billed in advance, resulting in
   deferred revenues.
   
      Short-Term Financing Arrangement - Ameritech provides short-term
   financing and cash management services to its subsidiaries,
   including the Company.  Ameritech issues commercial paper and notes
   and secures bank loans to fund the working capital requirements of
   its subsidiaries and invests short-term excess funds on their
   behalf.  Interest charged to the Company by Ameritech for financing
   was $35.8 million in 1996, $38.3 million in 1995 and $27.1 million
   in 1994.  (See Note E).
   
   B. Income Taxes
   
     The components of income tax expense follow:
   
                                            1996        1995        1994
                                            ----        ----        ----
   Federal
     Current........................  $   292.9   $   211.7   $   226.0
     Deferred, net...................       7.3        87.5       (41.9)
     Investment tax credits, net.....     (11.4)      (14.2)      (14.6)
                                      ---------   ---------   ---------
   Total.............................     288.8       285.0       169.5
                                       ---------   ---------   ---------
   State and Local
     Current.........................      65.6        33.2        43.5
     Deferred, net...................      11.5        16.0        (6.7)
                                      ---------   ---------   ---------
     Total...........................      77.1        49.2        36.8
                                       ---------   ---------   ---------
   Total income tax expense.......... $   365.9   $   334.2   $   206.3
                                       =========   =========   =========
      
      
      Total income taxes paid were $308.0 million, $312.6 million, and
   $290.2 million in 1996, 1995 and 1994, respectively.
   
                                     23
                                      
   <PAGE>
   
      The following is a reconciliation between the statutory federal
   income tax rate for each of the past three years and the Company's
   effective tax rate:
   
                                            1996        1995        1994
                                            ----        ----        ----
   Statutory federal income
    tax rate.........................      35.0%       35.0%       35.0%
   
   State income taxes, net of
    federal benefit..................       5.7         3.5         4.5
   
   Reduction in tax expense due to
      amortization of investment tax
      credits........................      (0.8)       (1.0)       (2.7)
      
   Real estate write-down requiring
    valuation allowance............         -           -           2.5
   
   Benefit of tax rate differential applied
      under FAS 71 applied to reversing
    temporary differences............       -           -          (1.3)
   
   Other.............................       1.6        (0.7)        0.7
                                       ---------   ---------   ---------

   Effective income tax rate.........      41.5%       36.8%       38.7%
                                       =========   =========   =========
      
      
      As of December 31, 1996 and 1995 the components of long-term
   accumulated deferred income taxes were as follows:
   
                                                1996        1995
                                                ----        ----
       Deferred tax assets
        Postretirement and
         postemployment benefits.......     $  381.0    $  389.5
        Other..........................         21.0         8.8
                                            --------    --------
                                               402.0       398.3
                                            --------    --------
       Deferred tax liabilities
        Accelerated depreciation.......        532.6       510.2
        Prepaid pension cost...........        111.5        95.2
        Other..........................          2.8        13.7
                                            --------    --------
                                               646.9       619.1
                                            --------    --------
       Net deferred tax liability......     $  244.9    $  220.8
                                            ========    ========

      Deferred income taxes in current assets and liabilities relate
   primarily to temporary differences resulting from vacation pay,
   uncollectibles, and work force restructuring.  The Company had
   valuation allowances against certain deferred tax assets aggregating
   $12.0 million as of December 31, 1996 and 1995.
   
                                     24
                                      
   <PAGE>
   
   C.  Property, Plant and Equipment
   
      The components of property, plant and equipment are as follows:
   
                                                1996        1995
                                                ----        ----
       Land............................     $   37.4    $   38.8
       Buildings.......................        784.4       755.3
       Central office equipment........      3,470.6     3,183.6
       Cable, wiring and conduit.......      3,753.6     3,559.0
       Other...........................        735.8       846.0
                                            --------    --------
                                             8,781.8     8,382.7
       Under construction..............         55.1        62.0
                                            --------    --------
                                             8,836.9     8,444.7
       Less, accumulated depreciation..      5,007.0     4,689.4
                                            --------    --------
                                            $3,829.9    $3,755.3
                                            ========    ========

      Depreciation expense on property, plant and equipment was $570.4
   million, $537.9 million and $527.1 million in 1996, 1995 and 1994,
   respectively.
   
   D. Employee Benefit Plans
   
      Pension Plans - Ameritech maintains noncontributory defined
   benefit pension plans covering substantially all of the Company's
   employees and death benefit plans for nonmanagement employees.
   Pension credits are allocated to subsidiaries based upon the
   percentage of compensation for the management plan and per employee
   for the nonmanagement plan.  The Company's funding policy is to
   contribute annually an amount up to the maximum amount that can be
   deducted for federal income tax purposes.  However, due to the
   funded status of the plans, no contributions have been made for the
   years reported below.  The following data provides information on
   the Company's credits for the Ameritech plans:
   
                                        1996        1995       1994
                                        ----        ----       ----
    Pension credits............    $   (40.7)  $   (33.8)  $  (60.0)
    Current year credits
     as a percent of
     salaries and wages........         (6.0)%      (5.3)%     (8.0)%

      Pension expense was determined using the projected unit credit
   actuarial method.  The resulting pension credits are primarily
   attributable to favorable investment performance and the funded
   status of the plans.
   
      Certain disclosures are required to be made of the components of
   pension credits and the funded status of the plans, including the
   actuarial present value of accumulated plan benefits, accumulated
   projected benefit obligation and the fair value of plan assets.
   Such disclosures are not presented for the Company because the
   structure of the Ameritech plans does not permit the plans' data to
   be readily disaggregated.
   
      The assets of the Ameritech plans consist principally of debt
   and equity securities, fixed income investments and real estate.  As
   of December 31, 1996, the fair value of plan assets available for
   plan benefits exceeded the projected benefit obligation (calculated
   using a discount rate of 7.5% and 6.9% as of December 31, 1996 and
   1995, respectively).  The assumed long-term rate of return on plan
   assets used in determining pension credits (or income) was 8.0% for
   1996 and 7.25% for 1995 and 1994.  The assumed increase in future
   compensation, also used in the determination of the projected
   benefit obligation, was 4.2% in 1996 and 4.5% in 1995.
   
                                     25
                                      
   <PAGE>
   
      Postretirement Benefits Other Than Pensions - Ameritech sponsors
   health care and life insurance plans which provide noncontributory
   postretirement benefits to substantially all of the Company's
   retirees and their dependents.  Ameritech accrues the cost of
   postretirement benefits granted to employees as expense over the
   period in which the employee renders service and becomes eligible to
   receive benefits.  The cost of postretirement health care and life
   insurance benefits for current and future retirees is recognized as
   determined under the projected unit credit actuarial method.
   Ameritech allocates its retiree health care cost on a per
   participant basis, whereas group life insurance is allocated based
   on compensation levels.
   
      Ameritech has provided for part of the cost of these plans by
   making contributions for health care benefits to voluntary employee
   benefit association trust funds (VEBAs) and maintains retirement
   funding accounts (RFAs) to provide life insurance benefits.
   Ameritech intends to continue to fund the nonmanagement VEBA.
   Funding of the management VEBA was suspended effective in 1994.  The
   nonmanagement VEBA and the RFAs earn income without tax.  Plan
   assets consist principally of corporate securities and bonds.
   
      Certain disclosures are required as to the components of
   postretirement benefit costs and the funded status of the plans.
   Such disclosures are not presented for the Company as the structure
   of the Ameritech plans does not permit the data to be readily
   disaggregated.  However, the Company has been advised by Ameritech
   as to the following assumptions used in determining FAS 106 costs.
   As of December 31, 1996, the accumulated postretirement benefit
   obligation exceeded the fair value of plan assets available for plan
   benefits.  The assumed discount rate used to measure the accumulated
   postretirement benefit obligation was 7.5% as of December 31, 1996
   and 6.9% as of December 31, 1995.  The assumed rate of increase in
   future compensation levels was 4.2% in 1996 and 4.5% in 1995.  The
   expected long-term rate of return on plan assets was 8.0% in 1996
   and 7.25% in 1995 and 1994 on VEBAs, and 8.0% in 1996, 1995 and 1994
   on RFAs.  The assumed health care cost trend rate in 1996 was 8.4%
   and 8.8% in 1995, and is assumed to decrease gradually to 4.0% in
   2007 and remain at that level.  The assumed health care cost trend
   rate is 8.0% for 1997.  The health care cost trend rate has a
   significant effect on the amounts reported for costs each year, as
   well as on the accumulated postretirement benefit obligation.
   Specifically, increasing the assumed health care cost trend rate by
   one percentage point in each year would have increased the 1996
   annual expense by approximately 15.6%.
   
      Postretirement benefit cost under FAS 106 was $95.6 million in
   1996, $88.6 million in 1995 and $90.2 million in 1994.
   
      As of December 31, 1996, the Company had approximately 18,000
   retirees eligible to receive health care and group life insurance
   benefits.
   
      Work Force and Other Restructuring - During March 1994,
   Ameritech announced a plan to reduce its existing nonmanagement work
   force.  As of December 31, 1995, 3,503 employees had left the
   Company as a result of this restructuring.  See additional
   discussion in Management's Discussion and Analysis of Results of
   Operations.
   
      As a result of this restructuring, a pretax charge of $196.5
   million, or $118.4 million after-tax, was recorded in 1994.  In
   1995, a credit of $57.1 million, or $30.4 million after-tax, was
   recorded resulting primarily from settlement gains from lump-sum
   pension payments to former employees, net of additional
   restructuring charges of $15.5 million recorded in the fourth
   quarter of 1995.  The fourth quarter restructuring charges included
   $11.2 million associated with increased force costs related to the
   restructuring started in 1994, as well as planned work force
   reductions due to consolidation of Ameritech's data centers.  In
   connection with this consolidation, an additional $4.3 million was
   recorded to write down certain data processing equipment to
   estimated net realizable value.  The cumulative gross program cost
   through December 31, 1995 totaled $335.7 million, partially offset
   by settlement gains of $196.3 million for an aggregate pretax net
   program cost of $139.4 million, or $88.0 million after-tax.
   
                                     26
                                      
   <PAGE>
   
      Management Work Force Reductions - Effective January 1, 1995,
   management employees who are asked to leave the Company will receive
   a severance payment under the Management Separation Benefit Program
   (MSBP).  The Company accounts for this benefit in accordance with
   FAS 112, "Employers' Accounting for Postemployment Benefits,"
   accruing the separation cost when incurred.  The number of employees
   leaving the Company under the MSBP and the predecessor plan was 73
   in 1996, 57 in 1995 and 277 in 1994.
   
      Settlement gains result from the payment of lump-sum
   distributions from the pension plan to former employees and are
   recorded as a credit to other operating expense.  Settlement gains,
   net of termination costs, under the plans were $5.5 million, $8.9
   million and $13.0 million in 1996, 1995 and 1994, respectively.  The
   involuntary plans are funded from Company operations and required
   cash payments of $1.7 million, $1.4 million and $9.6 million in
   1996, 1995 and 1994, respectively.
   
   E. Debt Maturing Within One Year
   
      Debt maturing within one year is included as debt in the
   computation of debt ratios and consisted of the following as of
   December 31:
                                                1996        1995
                                                ----        ----
       Notes payable - Ameritech.......     $  735.3    $  544.0
        Long-term debt maturing
        within one year................         51.5         1.3
                                            --------    --------
       Total...........................     $  786.8    $  545.3
                                            ========    ========

       Weighted average interest
        rate of notes payable,
        year-end.......................          5.4%        5.8%
                                            ========    ========

      As of December 31, 1996, $50.0 million of long-term debt was
   reclassified to debt maturing within one year to reflect First
   Mortgage bonds, Series G, 4 7/8%, which mature in July 1997.
   
   F.  Long-Term Debt
   
      Long-term debt consists principally of mortgage bonds and
   debentures issued by the Company.
   
      The following table sets forth interest rates, scheduled
   maturities and other information on long-term debt outstanding as of
   December 31:
  
                                                       1996        1995
                                                       ----        ----
   First Mortgage bonds:
     Series G, 4 7/8%, due July 1, 1997......     $     -     $    50.0
     Series H, 4 3/8%, due July 1, 2003......          50.0        50.0
     Series K, 7 5/8%, due April 1, 2006.....         200.0       200.0
   Forty year 8 1/2% debentures,
     due April 22, 2026......................         275.0       275.0
   Thirty-one year 7 1/4% debentures,
     due March 15, 2024......................         200.0       200.0
   Thirty year 7 1/8% debentures,
     due July 1, 2023........................         100.0       100.0
   Thirty-one year 6 5/8% debentures,
     due February 1, 2025....................         100.0       100.0
   Ten year 5 4/5% notes,
     due February 1, 2004....................         100.0       100.0
                                                  ---------   ---------
                                                    1,025.0     1,075.0
   Capital lease obligations.................           4.2         3.4
   Unamortized discount, net.................         (16.9)      (17.2)
                                                  ---------   ---------
   Total.....................................     $ 1,012.3   $ 1,061.2
                                                  =========   =========
         
         
                                     27
                                      
   <PAGE>
   
      The Company has filed a registration statement with the
   Securities and Exchange Commission for issuance of up to $550.0
   million in unsecured debt securities.  As of December 31, 1996,
   $200.0 million of debt had been issued under this shelf
   registration.
   
      Over the next five years, only the Series G 4 7/8%, First
   Mortgage Bonds with a principal amount of $50.0 million and a
   maturity date of July 1, 1997 are scheduled to be retired.
   
      Substantially all property, plant and equipment owned by the
   Company is subject to lien under the indenture covering first
   mortgage bonds.
   
   G. Lease Commitments
   
      The Company leases certain facilities and equipment used in its
   operations under both operating and capital leases.  Rental expense
   under operating leases was $31.1 million, $29.8 million and $26.5
   million for 1996, 1995 and 1994, respectively.  As of December 31,
   1996, the aggregate minimum rental commitments under noncancelable
   leases were approximately as follows:
   
       Years                              Operating    Capital
       -----                              ---------    -------
       1997 ...........................     $   7.3    $   1.8
       1998 ...........................         7.3        1.2
       1999 ...........................         6.1        0.8
       2000 ...........................         5.7        0.7
       2001 ...........................         5.6        2.2
       Thereafter .....................        31.6        0.3
                                            -------    -------
       Total minimum lease commitments.     $  63.6    $   7.0
                                            =======
       Less:  amount representing
                executory costs........                    -
              amount representing
                interest costs.........                    1.4
                                                       -------
       Present value of minimum
        lease payments ................                $   5.6
                                                       =======

   H.  Financial Instruments
   
      The following table presents the estimated fair value of the
   Company's financial instruments as of December 31, 1996 and 1995:
   
                                                     1996
                                                -------------
                                            Carrying      Fair
                                              Value      Value
                                              -----      -----
       Cash and temporary cash
        investments....................    $    -     $    -
       Debt ...........................     1,833.6    1,845.6
       Long-term payable to ASI
        (for postretirement benefits)..        25.5       25.5
       Other assets....................         5.3        5.3
       Other liabilities...............         4.7        4.7

                                     28
                                      
   <PAGE>
   
                                                     1995
                                                -------------
                                            Carrying      Fair
                                              Value      Value
                                              -----      -----
       Cash and temporary cash
        investments....................    $    0.3   $    0.3
       Debt ...........................     1,645.0    1,695.1
       Long-term payable to ASI
        (for postretirement benefits)..        27.3       27.3
       Other assets....................         5.6        5.6
       Other liabilities...............        11.1       11.1

      The following methods and assumptions were used to estimate the
   fair value of financial instruments:
   
      Cash and temporary cash investments - The carrying value
   approximates fair value because of the short-term maturity of these
   instruments.
   
      Debt -  The carrying amount (including accrued interest) of debt
   maturing within one year approximates fair value because of the
   short-term maturities involved.  The fair value of long-term debt
   was estimated based on the year-end quoted market price for the same
   or similar issues.
   
      Other assets and liabilities - These financial instruments
   consist primarily of other investments and customer deposits.  The
   fair values of these items are based on expected cash flows or, if
   available, quoted market prices.
   
      Long-term payable to ASI (for postretirement benefits) -
   Carrying value approximates fair value.
   
   I. Discontinuation of Regulatory Accounting - FAS 71
   
      In 1994, having achieved price regulation and recognizing
   increased competition, the Company concluded that GAAP prescribed by
   FAS 71 was no longer appropriate.
   
      As a result of discontinuing the application of FAS 71, the
   Company recorded an extraordinary noncash after-tax charge of $728.6
   million in 1994.  The following table is a summary of the
   extraordinary charge.
   
                                              Pretax   After-Tax
                                              ------   ---------
     Increase to the accumulated
      depreciation balance.............     $1,151.5    $  693.9
     Elimination of other
      net regulatory assets............         82.1        49.4
     Tax-related net regulatory
      liabilities......................          -           5.5
     Accelerated amortization of
      tax credits......................          -         (20.2)
                                            --------    --------
                                            $1,233.6    $  728.6
                                            ========    ========


      The adjustment of $1,151.5 million to net property, plant and
   equipment was necessary because estimated useful lives and
   depreciation methods historically prescribed by regulators did not
   keep pace with technological changes and differed significantly from
   those used by nonregulated enterprises.  Plant balances were
   adjusted by increasing the accumulated depreciation balance.  The
   necessary adjustment was determined by a discounted cash flow
   analysis which considered technological changes, capital
   requirements and estimated impacts of future competition.  To
   corroborate this study, a depreciation reserve study was also
   performed that identified inadequate accumulated depreciation levels
   by individual asset categories.  The Company believes these levels
   developed over the years as a result of the systematic
   underdepreciation of assets resulting from the regulatory process.
   
      When adjusting its net property, plant and equipment, the
   Company gave effect to shorter, more economically realistic lives,
   as previously outlined in Note A.
   
                                     29
                                      
   <PAGE>
   
      The discontinuation of FAS 71 also required the Company to
   eliminate from its balance sheet the effects of any actions of
   regulators that had been recognized as assets and liabilities
   pursuant to FAS 71, but would not have been recognized as assets and
   liabilities by nonregulated enterprises.  The elimination of other
   net regulatory assets primarily related to certain deferred vacation
   pay, debt financing costs and certain deferred assets.
   
      Additionally, at the time the Company discontinued the
   application of FAS 71, the income tax-related regulatory assets and
   liabilities were eliminated and deferred tax balances adjusted to
   reflect application of FAS 109, "Accounting for Income Taxes",
   consistent with other nonregulated enterprises.  As asset lives were
   shortened, the related unamortized investment tax credits deemed
   already earned were credited to income.
   
   J.  Stock Options
   
      During 1995, the Financial Accounting Standards Board issued FAS
   123, "Accounting for Stock-Based Compensation."  This pronouncement
   requires that Ameritech calculate the value of stock options at the
   date of grant using an option pricing model.  Ameritech elected the
   "pro forma, disclosure only" option permitted under FAS 123, instead
   of recording a charge to operations.  Certain Company management
   personnel receive Ameritech stock options; however, the portion of
   the option programs allocable to Company employees is not
   significant.
   
   K.  Additional Financial Information
   
                                                  As of December 31,
                                                  ------------------
                                                   1996        1995
                                                   ----        ----
   Balance Sheets
   Other current liabilities:
     Accrued payroll.......................   $    21.3   $    22.2
     Compensated absences..................        53.3        53.0
     Accrued taxes.........................       101.7        24.4
     Income taxes deferred one year........       (38.7)      (33.5)
     Advance billings and customer
       deposits............................        86.0        76.8
     Dividend payable......................         -         154.2
     Accrued interest......................        31.5        32.0
     Other.................................        37.0        32.9
                                              ---------   ---------
      Total................................   $   292.1   $   362.0
                                              =========   =========

      Advertising and promotion costs were $53.3 million, $52.6
   million and $35.5 million in 1996, 1995 and 1994, respectively.
   Interest paid was $120.4 million, $118.0 million and $106.3 million
   in 1996, 1995 and 1994, respectively.
   
      Revenues from AT&T, consisting principally of interstate network
   access and billing and collection services revenues, comprised
   approximately 11% of total revenues in 1994.  No other customer
   accounted for more than 10% of total revenues in that year.  No
   customer accounted for more than 10% of revenues either in 1996 or
   1995.
   
   L.  Other Income, Net
   
      The components of other income, net were as follows:
   
                                       1996        1995        1994
                                       ----        ----        ----
   Equity in earnings of ASI..    $    12.7   $    11.9   $    16.6
   Other, net.................         (2.0)       (4.4)       (7.6)
                                  ---------   ---------   ---------
     Total....................    $    10.7   $     7.5   $     9.0
                                  =========   =========   =========

                                     30
                                      
   <PAGE>
   
   M.  Quarterly Financial Information (Unaudited)
   
                                          Operating     Net
                               Revenues    Income     Income
                               --------    ------      ------
   1996
   ----
    First Quarter.............  $ 897.1   $ 240.3   $ 130.8
    Second Quarter............    918.8     249.5     131.6
    Third Quarter.............    908.9     219.6     113.8
    Fourth Quarter............    938.3     277.0     138.7
                                -------   -------   -------
      1996 Total.............. $3,663.1   $ 986.4   $ 514.9
                                =======   =======   =======
   1995
   ----
    First Quarter.............  $ 809.3   $ 296.7   $ 167.1
    Second Quarter............    859.6     257.0     146.0
    Third Quarter.............    872.7     247.5     140.2
    Fourth Quarter............    872.4     216.0     120.0
                                -------   -------   -------
      1995 Total.............. $3,414.0  $1,017.2   $ 573.3
                                =======   =======   =======

      Total nonmanagement work force restructuring credits in 1995
   were $57.1 million or $30.4 million after-tax as follows: $76.9
   million or $46.4 million after-tax in the first quarter and net
   charges of $5.8 million or $3.6 million after-tax in the third
   quarter and $14.0 million or $12.4 million after-tax in the fourth
   quarter.
   
      All adjustments necessary for a fair statement of results for
   each period have been included.
   
   N.  Calculation of Ratio of Earnings to Fixed Charges
   
      The ratio of earnings to fixed charges of the Company for the
   years ended December 31, 1996, 1995, 1994, 1993 and 1992 was 7.73 ,
   7.99, 5.45, 5.82 and 5.68, respectively.
   
      For the purpose of calculating this ratio, (i) earnings have
   been calculated by adding to income before interest expense and
   extraordinary item, the amount of related taxes on income, the
   portion of rentals representative of the interest factor and
   undistributed equity earnings, (ii) the Company considers one-third
   of rental expense to be the amount representing return on capital,
   and (iii) fixed charges comprise total interest expense, capitalized
   interest and such portion of rentals.
   
   Item 9.  Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure.
   
      No changes in or disagreements with accountants on any matter of
   accounting principles or practices, financial statement disclosure
   or auditing scope or procedure occurred during the period covered by
   this annual report.
   

                                     31
                                      
   <PAGE>
   
                                   PART IV
                                      


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.


(a)  Documents filed as part of the report:
 
    (1) Financial Statements:
 
                                                                  Page
                                                                  ----
        Selected Financial and Operating Data.....................   9
        Report of Independent Public Accountants..................  17
        Statements:
          Statements of Income and Accumulated Deficit..            18
          Balance Sheets..........................................  19
          Statements of Cash Flows................................  20
          Notes to Financial Statements...........................  21
 
    (2) Financial Statement Schedule:
 
        II  Valuation and Qualifying Accounts..................     35
 
      Financial statement schedules other than the one listed above
   have been omitted because the required information is contained in
   the financial statements and notes thereto, or because such
   schedules are not required or applicable.
   
     (3) Exhibits
 
      Exhibits identified in parentheses below, on file with the SEC,
   are incorporated herein by reference as exhibits hereto.
   
   Exhibit
   Number
   ------
    3a -  Certificate of Incorporation of the Company as amended and
          restated March 21, 1990 (Exhibit 3a to Form 10-K for 1989,
          File No. 1-2222).
    
    3b -  By-laws of the Company, effective March 21, 1990 (Exhibit
          3b to Form 10-K for 1989, File No. 1-2222).
    
    4b -  No instrument which defines the rights of holders of long
          and intermediate term debt of the Company is filed
          herewith pursuant to Regulation S-K, Item
          601(b)(4)(iii)(A).  Pursuant to this regulation, the
          Company hereby agrees to furnish a copy of any such
          instrument to the SEC upon request.
    
    10a - Reorganization and Divestiture Agreement between American
          Telephone and Telegraph Company, American Information
          Technologies Corporation and Affiliates, dated as of
          November 1, 1983 (Exhibit 10a to Form 10-K for 1983 for
          American Information Technologies Corporation, File No. 1-
          8612).
    
    10b - Agreement Concerning Illinois Bell Mortgage Bonds with
          American Telephone and Telegraph Company dated January 1,
          1984 (Exhibit (10)(ii)(B)8 to Form 10-K for 1983, File No.
          1-2222).
    
    10c - Ordinance authorizing the Company to construct, maintain
          and operate a telephone system in the City of Chicago,
          effective July 30, 1931 (Exhibit 5-C to Registration
          Statement No. 2-42370).
    
    12 -  Computation of ratio of earnings to fixed charges for the
          five years ended December 31, 1996.
    
    23 -  Consent of Arthur Andersen LLP.
    
    27 -  Financial Data Schedule for the year ended December 31,
          1996.
 
                                     32
                                      
   <PAGE>
   
(b)  Reports on Form 8-K:

   No Form 8-K was filed by the registrant during the fourth quarter of
   1996.
   
                                     33
                                      
   <PAGE>
   

                                 SIGNATURES
                                 ----------
                                      
      Pursuant to the requirements of Section 13 or 15(d) of the
   Securities Exchange Act of 1934, the registrant has duly caused this
   report to be signed on its behalf by the undersigned, thereunto duly
   authorized.
   
                                ILLINOIS BELL TELEPHONE COMPANY


                                      /s/ Ronald G. Pippin
                                 -----------------------------
                                       Ronald G. Pippin,
                                          Comptroller

   March 11, 1997
   
      Pursuant to the requirement of the Securities Exchange Act of
   1934, this report has been signed below by the following persons on
   behalf of the registrant and in the capacities and on the date
   indicated.
   
   Principal Executive Officer:
   
   /s/ Douglas L. Whitley
   -----------------------------
   Douglas L. Whitley,
        President
   
   Principal Financial and Accounting Officer:
   
   /s/ Ronald G. Pippin
   -----------------------------
    Ronald G. Pippin,
       Comptroller
   
   Ameritech Corporation:
   
      /s/ Barry K. Allen
   -----------------------------
       Barry K. Allen,
      Executive Vice President,
   Consumer and Business Services
   
   The sole shareowner of the registrant, which is
   a statutory close corporation managed by the
   shareowner rather than by a board of directors.
   
   March 11, 1997
                                     34
                                      
                         ILLINOIS BELL TELEPHONE COMPANY
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                          ALLOWANCE FOR UNCOLLECTIBLES
                              (Dollars in Millions)
                                        
                                        
       COL. A        COL. B            COL. C                COL. D      COL. E
       ------        ------      -----------------           ------      ------
                                     Additions
                                 -----------------
                 Balance at   Charged       Charged                    Balance
                 Beginning        to       to Other                  at End of
                 of Period   Expense (a)  Accounts (b)  Deductions (c)  Period
                 ---------   ----------   -----------   -------------   ------
 
Year 1996...........$  48.8    $ 106.4       $114.5       $ 188.1      $  81.6
Year 1995...........   43.9       42.8         66.2         104.1         48.8
Year 1994...........   36.7       42.7         66.8         104.3         43.9
 
 ----------------------
     
     
   (a)Excludes direct charges and credits to expense on the statements of
      income and accumulated deficit related to interexchange carrier
      receivables.
      
   (b)Includes principally amounts related to the interexchange carrier
      receivables which are being billed by the Company and amounts
      previously written off which were credited directly to this account
      when recovered, as well as a reclassification in 1996 of $15.7 million
      from current liabilities to more accurately state the allowance.
      
   (c)Amounts written off as uncollectible.



                                    35